Royal Bank of Scotland chief executive Stephen Hester has been slapped down by
10 Downing Street for suggesting that the state controlled bank could be
sold off within two years.

Mr Hester said that on Thursday that RBS "will be ready to be privatised within the next couple of years", which would be in time for the May 2015 general election.

Mr Hester said the core bank was “much closer now to being in the good financial health that would allow shareholders to receive a dividend and the Government to start to sell its stake”.

He “welcomed” the fact that privatisation was back “on the Government’s agenda”, and said the sale of the bank was “within reach”. He said: “We know the Government does not want to own our shares and we are doing everying we can to facilitate a sale.

“The clean up of RBS is entering its last phases and I am hopeful that as we go past 2013 and into 2014 it will look much more like a normal company…

“I do think that privatisation is now a light coming down the tunnel, much closer to us and within reach within not too distant a period. It is for the Government to decide – it is their shares – they will decide the timing, the manner, the price…”

However, hours later, the Prime Minister’s official spokesman said he wanted to state “emphatically” that the Government was not working towards a float by any specific date.

He said: “There is no timetable. What is important is the progress the bank is making. I could not be more emphatic – there is not a timetable for float.

"There is a process to put the bank back on its feet. RBS is in the process of restructuring its activities towards its core UK businesses. That is what UKFI is working with RBS on a reasonably day to day basis.”

The spokesman declined to criticise RBS, which is 81 per cent owned by the taxpayer, for paying out bonuses worth £607million to its staff, while it lost £5billion and paid out large fines for “conduct issues”.

Mr Hester - who has already waived his bonus for 2012 - defended its multi-million pound bonus pot, which includes £215 million for investment bankers, saying its staff were “badly needed” to help turn the bank around.

Asked how Downing Street could defend paying out the bonuses, the spokesman said that it was important “to get under the skin of what is going in today’s results.

The spokesman said: “What you have is a bank that is recovering from the mistakes that were made – core profits are up but a large proportion of the losses are linked to conduct issues like Libor and PPI.

“Clearly the banks are also having to deal with the mistakes of the past and what drives the Government’s activity in this is responsibility and restraint in remuneration, and responsibility to the taxpayer. That is ensuring that RBS continues in its track to be put on a stable footing.”